What is Bitcoin? Learn Bitcoin in three minutes

What Is Bitcoin?

Bitcoin is a decentralized digital currency, also known as a cryptocurrency, that enables peer-to-peer transactions without the need for intermediaries like banks or governments. It was introduced in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto. The core idea behind Bitcoin is to offer a form of money that operates independently of any central authority.

Each transaction made with Bitcoin is recorded on a public ledger called the blockchain, which ensures transparency and security. The blockchain is maintained by a global network of computers (nodes), and every new block added must be verified through a process known as mining.

How Does Bitcoin Work?

Bitcoin works using cryptographic techniques and a distributed consensus mechanism. Every user has a pair of keys: a public key (which acts as their address) and a private key (which allows them to send funds). When someone sends Bitcoin, they sign the transaction with their private key, and the network confirms its validity.

The blockchain serves as the transaction record. Each block contains a list of transactions and is linked to the previous one, making it extremely difficult to alter past records. Miners compete to validate these blocks by solving complex mathematical puzzles through a process called proof-of-work. The first miner to solve the puzzle adds the block to the chain and receives newly minted Bitcoin as a reward.

How Can You Buy Bitcoin?

Buying Bitcoin requires choosing a reliable exchange platform. Popular exchanges include Binance, Coinbase, and Kraken. Begin by creating an account and completing identity verification, often referred to as KYC (Know Your Customer).

Once your account is set up:

• Deposit fiat currency (like USD or EUR) into your account.
• Navigate to the Bitcoin trading pair (e.g., BTC/USD).
• Place a market order or a limit order based on your preference.
• After purchasing, you can either leave your Bitcoin on the exchange or transfer it to a secure wallet.

It's crucial to store your Bitcoin in a wallet where you control the private keys, such as hardware wallets (Ledger, Trezor) or software wallets (Electrum, Trust Wallet).

How Do You Send and Receive Bitcoin?

Sending and receiving Bitcoin involves using wallet addresses. To receive Bitcoin, share your public address (a long string of letters and numbers) with the sender. This can usually be done via QR code scanning or copying and pasting the address.

To send Bitcoin:

• Open your wallet app or service.
• Select 'Send' and enter the recipient’s Bitcoin address.
• Specify the amount you wish to send.
• Choose the transaction fee (higher fees mean faster confirmation).
• Confirm the transaction using your private key or password.

Always double-check the recipient's address before sending, as mistakes are irreversible due to the nature of blockchain technology.

How Is Bitcoin Secured?

Bitcoin's security comes from cryptography and decentralization. The blockchain is protected by SHA-256 encryption, making it nearly impossible to alter transaction data once confirmed. Additionally, because the network is decentralized, there is no single point of failure.

Miners and full nodes work together to maintain consensus. Any attempt to manipulate the system would require controlling more than 50% of the network's computing power, known as a 51% attack, which is highly impractical due to the immense cost and coordination required.

Private keys are the most critical component of Bitcoin ownership. If someone gains access to your private keys, they can steal your Bitcoin. Therefore, storing them securely—using cold storage methods like paper wallets or hardware wallets—is essential.

Frequently Asked Questions

How many Bitcoins are left to mine?

There will only ever be 21 million Bitcoins. As of now, over 19 million have already been mined. The remaining supply is released gradually through mining rewards, which halve approximately every four years in an event known as the halving.

What determines Bitcoin’s price?

Bitcoin’s price is determined by supply and demand in the market. Factors influencing its value include adoption rates, macroeconomic conditions, regulatory developments, and investor sentiment.

Is Bitcoin legal?

Bitcoin is legal in most countries, though regulations vary widely. Some nations have embraced it, while others have imposed restrictions or outright bans. Always check local laws before buying or using Bitcoin.

Can Bitcoin transactions be traced?

Yes, Bitcoin transactions are publicly visible on the blockchain. While users aren't identified by name, all transactions associated with a particular wallet address are transparent. This makes Bitcoin pseudo-anonymous rather than fully anonymous.